Fed's Powell announces shift in policy framework

The head of America's Federal Reserve announced a shift in monetary policy in order to allow both greater growth in hiring and for more sustained overshoots on inflation versus its target level following periods of weakness.

From now on the central bank would focus on shortfalls on employment measured against its Congressional mandate to target maximum employment, instead of "deviations from its maximum level" as had been the case up until now.

"Our revised statement emphasizes that maximum employment is a broad-based and inclusive goal," Powell said in remarks for his prepared speech at the Jackson Hole Economic Symposium.

"This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities."

He made his speech against a backdrop of heightened social tensions and a broad public debate in the US, including around racial economic inequality.

On inflation, monetary policymakers would now aim for "inflation that averages 2% over time".

Hence, the Fed would now also be aiming for inflation above its 2% target following periods of weakness.

Inflation as measured by the core price deflator for personal consumption expenditures had run at 1.4% on average since 2012, when it first established a 2% target.

Nonetheless, as ever, Powell noted that: "if excessive inflationary pressures were to build or inflation expectations were to ratchet above levels consistent with our goal," then the Fed would not hesitate to act.